A Window of Opportunity for Entrepreneurs

Stephen DeAngelis

May 20, 2010

One of the columnists I regularly follow is Luke Johnson, who writes for the Financial Times. He also runs Risk Capital Partners, a private equity firm, and is chairman of the Royal Society of Arts. Although he writes from “across the pond,” he has a wealth of experience dealing with entrepreneurs and venture capitalists. Johnson believes that as the global economy gradually emerges from recession it opens a window of opportunity for individuals who want to be their own boss [“Now is the moment to seize your opportunity,” 5 May 2010]. He writes:

“The hour is always darkest before dawn. I have a gut feeling that now might just be a great time to take the plunge. There is plenty of negative news about deficits and double-dip recession. But technology and global markets are creating real advantages for anyone tempted to give it a go. And a new concern will not be weighed down with the legacy issues like property and pension obligations that are holding back incumbent players.”

His “gut feeling” seems to apply especially to individuals who want to establish a virtual business (i.e., one that doesn’t have to deal with property issues). He explains his reasoning behind his belief that now is a good time to take the leap:

• The internet has made it easier to experiment than in the past. Building an online presence costs less than it ever did. … Yes, the web is crowded, but there are billions of consumers connected to it who might see your ads or buy your products. And if your idea fails, too bad – shut the project down and try another; it is cheaper and quicker to discover what works than at any time in history.

Although it is true that “internet has made it easier to experiment,” don’t be fooled into thinking that just because a new business is connected to the internet it is going to be a great success. You still need a good idea, a great business plan, and some luck to succeed.

• The corporate life seems less appealing. Jobs for life have gone; occupational pensions have gone; and who wants to slog away in a suffocating hierarchy their whole career? The freedom and satisfaction of self-employment are hard to beat. Of course there are risks – but then you might get sacked anyway if you work for someone else. Starting a company gives you the chance to achieve independence and self-determination – and if it succeeds, you really will get the rewards of your efforts.

I have noted before that it takes a certain temperament to become an entrepreneur. Johnson, I believe, gives a false impression that being self-employed is good for everyone. It’s not. Make sure you know yourself and your tolerance for risk before setting out on your own.

• The world needs entrepreneurs more than ever. New jobs and wealth creation spring principally from new companies. I predict governments will do more to encourage entrepreneurs in years to come – from lower taxes to a reduced regime of bureaucracy. Every policymaker I speak to understands that only private enterprise can tackle unemployment and generate the tax we need to deal with our problems.

Hear! Hear! I couldn’t agree more. With all of the negative press being generated by Goldman Sachs and their synthetic derivative products, we are constantly reminded that what the public really needs are jobs and real wealth creation.

• There is more advice and support than ever before. Books, online, agencies, magazines – you name it, there are hundreds of places to go to find ideas, recruit staff, secure premises, source IT, deal with legal and accounting issues and so forth. There are more clubs and networks – more ways to access funding, find partners and reach customers. There are many more role models and mentors around than when I started out in the 1980s.

All of that is true (except maybe for the availability of funding — which remains tight). I reiterate, however, that starting a new business is not as easy as Johnson makes it sound. Or maybe I should say, starting a business is easier than succeeding with one.

• It is easier to freelance and subcontract than before. Virtual businesses are common. Almost everything can be outsourced – manufacture, R&D, fulfilment, logistics, administration, IT – you name it. And providing these services offers endless niche markets.

Johnson is correct. Many companies are happy to subcontract for services rather than hire full-time employees. The savings for a company can be tremendous if they don’t have to pay benefits. As a CNN Money report notes, “A $14 per hour worker [can have] a true cost of $19.63 per hour, or about 40% more than base pay. This so-called ‘loaded rate’ includes fixed expenses — federal and state taxes, health insurance, workman’s compensation, uniforms, and paid time off — along with soft costs like the time spent training a new hire” [“Why a $14/hour employee costs $20,” by Catherine Clifford, 26 March 2010]. If you go this route, make sure you include some of those costs in your estimates of doing business. Also make sure that you have several clients. If you work solely for one client, that business can get in legal trouble because you are essentially its employee and not an independent contractor.

• There is talent galore looking to join in a new venture. Now is a wonderful time to recruit able staff. Big business and the state are shedding personnel – people will be more willing to throw in their lot with an emerging company than during the good times.

As I noted above, not everyone is cut out to be an entrepreneur; but that doesn’t mean that great people aren’t looking to go to work for one. With so many people out of work right now, people with jobs are in the driver’s seat.

• Premises and plants are plentiful. Rents are lower, machines are in surplus – there is more choice than there has been for years in terms of premises and equipment.

Although most of Johnson’s reasons for starting a new business right now focused on virtual businesses, his point here is that even traditional brick-and-mortar businesses should be able to get a good deal on office or shop space. With the economy picking up, however, good deals won’t last.

• Redundancy should be a beginning, not an end. Thousands do seize the day when they lose their job – and while not all find it a pushover, for many it allows them to pursue their dream and follow their passion.

“Redundancy” in the UK is a polite way of saying that you were fired. Papers like the Financial Times and Wall Street Journal and magazines like Bloomberg BusinessWeek are constantly running pieces about people who have re-invented themselves as a result of the current economic downturn. If you’ve been laid off, re-inventing yourself could be an exciting way of plotting your course into the future. It will be an even more exciting time if you can successfully take others along for the ride.

• Part-time is a way to get going. When I worked for others, I moonlighted for several years, participating in various schemes at weekends, evenings and during holidays. It gave me experience, confidence and helped generate capital – so I was better prepared when I left employment for good after a few years.

Part-time self-employment certainly can be a hedging strategy against failure. It takes enormous commitment and perseverance to hold down more than one job. Really successful businesses, however, normally take all of the time and attention an owner can give them. Johnson concludes, “No one believes starting something from scratch is a breeze. But as Samuel Johnson said: ‘He that labours in any great or laudable undertaking has his fatigues first supported by hope and afterward rewarded by joy.'” Tomorrow, I will discuss another of Johnson’s columns that deals with failure and success. They are topics with which any true entrepreneur needs to be fully conversant.